UK T-BILL AUCTION RESULTS: 1/3/6-Month UKTBs

While usually a non-event for markets, prime minister's questions at 12:00BST (07:00ET, 13:00CET) may prove more instructive on gov't thinking than is often the case. This follows rebel Labour MPs delivering a major blow to the gov'ts political credibility on 1 July as they extracted concessions that turned a bill intended to save GBP5bln/year by 2030 into legislation with zero "net savings" according to the Institute for Fiscal Studies. 

• While PM Sir Keir Starmer's working majority ostensibly stands at 166 (very large by UK standards), this was reduced to just 75 in the 1 July vote. Forty-nine Labour MPs voted against and 18 abstained despite huge concessions and a major whipping operation by the gov't.
• Such a rebellion, less than a year into the gov'ts five-year term, has baked in expectations of tax increases being used to plug holes in gov't finances rather than spending cuts for the duration of the parliament.
• Starmer emerges in a much weakened position following a series of U-turns in recent weeks. Labour disunity could provide a further boost to the right-wing populist Reform UK, already leading comfortably in opinion polling.
• Alex Wickham at Bloomberg: "Gilts calm this morning as traders see Reeves as solid on fiscal rules and likely to raise taxes to fill the hole in the public finances. But Downing St v wary of the risk of Labour MPs - who want her to ditch her fiscal rules to borrow more - risking an adverse market reaction."

DSTA has announced it will be looking to sell the following DTCs at its auction next Monday, July 7:

• E1.0-2.0bln of the 3-month Sep 29, 2025 DTC
• E0.5-1.5bln of the 4-month Oct 30, 2025 DTC

Taylor is done talking for now on Bloomberg and the text of his Sintra speech is here  (which was due at 11:30BST / 12:30CET).

• In this speech he reiterates the 5 cuts in 2025 that he said in the Bloomberg TV interview (mentioned above): "After some shocks and noise clouded my view of the economy and global developments in the first quarter, my reading of the deteriorating outlook suggested to me that we needed to be on a lower rate path, needing five cuts in 2025 rather than the market-implied quarterly pace of four."
• On the neutral rate Taylor says "I estimate the UK neutral real rate to be about 0.75 to 1 percent, putting the neutral nominal rate at around 2.75 to 3 percent"
• "Getting there, under our baseline scenario without further shocks, would take more time and a continued removal of restrictiveness in 2026 and 2027 as the economy returns to long-run real and nominal equilibrium."
• We note that estimate of 2.75-3.00% for the neutral rate is much lower than said by other MPC members recently.